Floating in the 9% range last year, rates, which ended the year at 9.27%, increased to 11.55% by the end of the first quarter 2001. Jerry Holdner, VP of market research for Voit, cites the dot-com failure syndrome partially for the increase, along with companies in other industries either relocating, downsizing or just sublease space hitting the market as vacating space.
"I was a bit surprised it took such a big jump in one quarter," Holdner says. "But with all the new construction it was expected. Even at 11.5% Orange County is still a healthy market. It's half of what it was at the worst time when the vacancy rates were in the 24% range back in 1993-94."
Another increase came in the area of lease rates, which rose from $2.23 per sf during the fourth quarter of last year, to $2.26 per sf on average for the county as a whole. The highest full-service gross rate can be found in the John Wayne Airport area where office space is leasing for an average $2.59 per sf, followed by the south county area at $2.21 per sf. The lowest average rates in the county can be found in the north county at $1.56 per sf.
"The average asking rate continues to climb because of energy rate increases being passed on to the tenant. As the rental rates go up, those increases are not seen by the owner, but by the electrical companies," he says.
Also for the first time is quite a while, the county experienced negative absorption of office space. For all of last year the county had positive absorption of just over 3.5 million sf, Holdner says, but for the first quarter of this year the county lost 823,000 sf.
New construction is down by 100,000 sf, compared to last year, but that is insignificant compared to the 2.2 million sf now under construction countywide--1.6 million sf of class A space and 600,000 sf of class B space. In addition, there is 7.4 million sf of planned construction in the works, but there is no guarantee that the planned construction will ever break ground, Holdner says. Still, there is 10 million sf of office space currently sitting vacant around the county.
"The market, in general, is not as strong of an property owner's market as it was. We're seeing concessions coming back into the market," Holdner says.
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